HTML PUBLIC "-//W3C//DTD HTML 4.01 Transitional//EN"L 279/40
EN
Official Journal of the European Union
12.10.2012
COMMISSION DECISION
of 21 March 2012
on the measure SA.31479 (2011/C) (ex 2011/N) which the United Kingdom plans to implement for
Royal Mail Group
(notified under document C(2012) 1834)
(Only the English text is authentic)
(Text with EEA relevance)
(2012/542/EU)
THE EUROPEAN COMMISSION,
— 7 October 2011 DX Group
Having regard to the Treaty on the Functioning of the European
Union, and in particular the first subparagraph of Article 108(2)
— 7 October 2011 Mail Competition Forum
thereof,
Having regard to the Agreement on the European Economic
— 7 October 2011 TNT
Area, and in particular Article 62(1)(a) thereof,
— 7 October 2011 Free Fair Post Initiative
Having called on interested parties to submit their comments
pursuant to the provision(s) cited above ( 1 ) and having regard to
their comments,
— 9 October 2011 Secured Mail.
Whereas:
(6) The
comments
received
from
interested
parties
were
1. PROCEDURE
forwarded to the United Kingdom on 12 October
2011. The United Kingdom submitted its observations
(1) On
10
June
2011,
after
informal
(pre-notification)
on the comments by letter registered on 16 November
contacts with the Commission, the United Kingdom of
2011.
Great Britain and Northern Ireland (the ‘United
Kingdom’) notified a series of measures (see section
2.3) in favour of Royal Mail Group (‘RMG’).
(7) On
22
August
2011
the
Commission
sent
an
information request to the United Kingdom, to which
(2) By
letter
dated
29
July
2011,
the
Commission
informed
it replied by letter of 14 September 2011.
the United Kingdom that it had decided to initiate the
procedure laid down in Article 108(2) of the Treaty in
respect of the notified measures in question.
(8) A
meeting
with
UK
authorities,
RMG
and
its
bankers
took place on 20 September 2011 in which the latter
(3) The
Commission
Decision
to
initiate
the
procedure
was
provided more detailed information on the notified
published in the Official Journal of the European Union (
restructuring plan.

2 ).

The Commission called on interested parties to submit
their comments.
(9) The
Commission
held
several
other
meetings
with
the
UK authorities on 12 October 2011, 10 and
(4) By
letter
dated
9
August
2011
the
United
Kingdom
requested an extension of the deadline to respond until
23 November 2011 and 12 January 2012 to discuss
14 September 2011, which was granted by the
the case. The United Kingdom submitted several pieces
Commission by letter of 11 August 2011. The United
of additional information by e-mail or letter dated
Kingdom transmitted its observations on 8 September
30 September 2011, 20 October 2011, 7, 11, 18, 20,
2011.
28 and 30 November 2011, 6 December 2011 and

14 February 2012.
(5) The
Commission
received
the
following
comments
from
interested parties:
(10) The
United
Kingdom
authorities
submitted
final
updates
to the notification and clarifications on the restructuring
— 5 October 2011 UK Mail
plan on 17 February 2012.
— 6 October 2011 Communication Workers Union
2. DETAILED DESCRIPTION OF THE MEASURES
— 6 October 2011 UPS
2.1. Context: liberalisation of the UK postal sector
— 7 October 2011 Deutsche Post
(11) The
United
Kingdom
places
the
notified
measures
in
the
context of its wider policy for postal services and
( 1 ) The initiation of proceedings was announced in OJ C 265, 9.9.2011,
p. 2.
underlines the strategic importance of RMG to ensure
( 2 ) See footnote 1.
the permanent provision of universal postal services.

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EN
12.10.2012 Official
Journal
of
the
European
Union L
279/41
(12) The
United
Kingdom
Government’s
policy
is
set
out
in
2.2. Beneficiaries of the measures
the Postal Services Act ( 3 ) (‘Postal Services Act 2011’),
which received Royal Assent on 13 June 2011. The
2.2.1. Structure of the Royal Mail Group
Act implements the recommendations of an independent
review led by Richard Hooper (‘Hooper Reports’) (
(13) RMG is 100 % State-owned through the Royal Mail

4 ) and,
in summary:
Holdings plc (‘RMH’). RMG is the United Kingdom’s
main postal operator and had a legal monopoly over
certain basic letter services until the end of 2005 when
(i) allows for private sector investment into RMG, with
the postal markets in the United Kingdom were fully
a view to injecting commercial disciplines and new
liberalised. RMG is providing the collection, sorting,
capital;
transportation and delivery of mail (letters, packets and
parcels), using the ‘Royal Mail’ and ‘Parcelforce
(ii) enables the transfer of the historic pension deficit to
Worldwide’ brands.
the United Kingdom Government leaving the
company with a smaller fully funded scheme (‘the
(14) The
post
office
network
is
operated
by
POL,
which
is
pension relief’);
currently wholly owned by RMG (and hence by the UK
Government). RMG and POL are separate legal entities
(iii) makes clear that Post Office Limited (‘POL’, the retail
though they are part of the same group. Consistent with
arm of RMG) is not for sale but will remain in State
the recommendations of the Hooper Reports, it is
ownership;
proposed that POL will remain in full public ownership
after the reform and will become a sister company of
(iv) paves the way to modernise the regulation of the
RMG under RMH.
postal services sector; and
(15) RMG has also other subsidiaries, notably General
Logistics System BV (‘GLS’) which is RMG’s European
(v) requires an employee share scheme which will hold
parcels business, providing parcel services, logistics and
at least 10 % of the equity in RMG by the time the
express services throughout Europe. The GLS network
UK Government has sold its entire shareholding in
comprises subsidiary companies and network partners
RMG.
covering 36 European countries.
Chart 1: current organisational structure of RMG
2.2.2. Royal Mail Group (RMG)
is required to discharge the universal service obligation
(‘USO’). These arrangements implement the requirements
(16) RMG
has
held
a
license
to
provide
letter
services
in
the
of Directive 97/67/EC of the European Parliament and of
United Kingdom under the Postal Services Act 2000
the Council of 15 December 1997 on common rules for
since 23 March 2001. Under the terms of its license, it
the development of the internal market of Community
postal services and the improvement of quality of
service ( 5 ) (‘Postal Services Directive’). RMG is required
( 3 ) http://services.parliament.uk/bills/2010-12/postalservices.html
by its license to negotiate commercial agreements with
( 4 ) ‘Modernise or Decline — Policies to maintain the universal postal
any interested operator for access to its national network.
service in the United Kingdom; an independent review of the UK
New operators have tended to enter the market through
postal services sector’, 16 December 2008, available at http://www.
such access agreements with RMG.
berr.gov.uk/files/file49389.pdf, updated by Hooper’s December 2008
report, ‘Saving the Royal Mail’s universal postal service in the digital
age’, available at: http://www.bis.gov.uk/assets/biscore/business-
sectors/docs/s/10-1143-saving-royal-mail-universal-postal-service.pdf.
( 5 ) OJ L 15, 21.1.1998, p. 14.

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L 279/42
EN
Official Journal of the European Union
12.10.2012
(17) RMG is the only licensee in the United Kingdom postal
subpostmasters or franchise partners. POL is entrusted to
market with universal service obligations. The main
maintain a network meeting certain access criteria for the
aspects of the current USO are (i) the delivery of postal
UK population (99 % of the population to be within 3
packets (letters, packets and parcels) up to 20 kg every
miles (4,8 km) of an outlet, etc.).
working day to the home or premises of every individual
or other person in the United Kingdom (Mon-Sat delivery
obligations for letters), (ii) at least one collection every
(23) POL does not currently have any employees as all
working day from each access point, and a service of
personnel currently working for POL (except those who
conveying, receiving, collecting, sorting and delivering
are self-employed) are seconded from RMG. Approxi
postal packets at affordable prices determined in
mately 9 000 RMG employees are seconded and work
accordance with a uniform tariff, and (iii) the provision
wholly for POL.
of a registered post service at prices determined in
accordance with a uniform tariff.
(24) POL
provides
retail
counter
services
to
RMG,
whilst
RMG
provides shared back-office support services to POL.
Furthermore, there are a number of shared services in
(18) RMG’s
license
imposes
price
controls
in
relation
to
the
place between RMG and POL (for example vehicle
provision of regulated services. The current price control
services, building security etc.) which are currently
was set in April 2006 for a four-year period, but has
provided at cost by RMG. The provision of these
been extended to March 2012.
services is currently subject to a service agreement
between RMG and POL that will be replaced by a
series of new service agreements when POL becomes a
(19) Furthermore,
RMG
is
required
by
its
license
to
allow
sister company of RMG.
customers and other postal companies access to its
national network on a non-discriminatory basis and in
practice most of the competitors to RMG have entered
(25) In addition to being a provider of services of general
the market by using third party access to RMG’s down
economic interest (‘SGEIs’), POL carries out some ‘com
stream network (for example final sorting of mail and
mercial’ activities (such as selling telephony and insurance
delivery on the ‘last mile’ to customers).
products) through its network and also through a direct
internet sales channel.
(20) Downstream
access
competition
involves
the
third
party
(26) On
23
March
2011,
the
Commission
authorised
GBP
operator collecting and processing the mail through its
180 million of public assistance to POL for the funding
own network until delivered to RMG’s sorting centres,
of its network of post offices during one year starting
where it is injected into RMG’s network for final
1 April 2011 ( 6 ). The Commission also authorised the
sorting and delivery to receiving customers. Under
continuation, over the same period, of existing loan
equivalent agreements known as ‘customer direct access’
facilities funding the provision of cash services at post
agreements, high-volume customers may deliver their
office counters. The Commission concluded that the aid
pre-sorted mail to RMG’s mail centres for downstream
is compatible with Union rules because it does not over
delivery.
compensate the net costs of the public service tasks
entrusted to POL.
(21) Competition
in
the
United
Kingdom’s
letter
mail
services
has arisen through downstream access to RMG’s network
(27) On 24 January 2012, the United Kingdom has notified a
and not end-to-end competition between RMG and new
package of measures in support of the SGEIs provided by
entrants. Since the market opening in 2006, the letter
POL, broadly similar to the measures authorised in 2011.
volumes that other UK postal operators inject into RMG’s
downstream network have grown on average by more
than 1 000 million items per annum and now account
2.2.4. Financial difficulties
for over 45 % of the United Kingdom addressed inland
mail market. RMG expects to lose even more market
(28) The
United
Kingdom
considers
RMG
to
be
a
firm
in
shares to its competitors in the coming years. For
difficulty because it is currently facing severe financial
certain high volume markets, competitors are expected
difficulties (the reported financial figures refer to the
to achieve market shares of […] (*).
consolidated results of RMG including all subsidiaries, if
not stated otherwise):
2.2.3. Post Office Limited (POL)
(i) the State of its balance sheet, in particular the
substantial size of the pension deficit;
(22) POL,
the
so-called
retail
arm
of
RMG,
is
responsible
for
the network of around 11 500 Post Office branches. Just
fewer than 400 of these are directly owned and managed
(ii) its projected cash flow shortages;
by POL. All others are privately owned and operated by
( 6 ) Commission Decision C(2011) 1770. The current authorisation of
(*) Business secret.
these measures expires on 31 March 2012.

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EN
12.10.2012 Official
Journal
of
the
European
Union L
279/43
(iii) its future inability to repay its debts when they fall
Savings Plan (‘RMRSP’) and the Royal Mail Defined
due in the absence of the notified measures;
Contribution Pension Plan (‘RMDCPP’). The notified
measure concerns only the RMPP and will not affect
members of the RMSEPP, the RMRSP or the RMDCPP.
(iv) RMG’s declining revenues from the letter business:
between the 2008/09 and 2010/11 financial years,
external revenue fell by 3,1 %, in the same period
inland addressed delivered volumes decreased by
T h e R M P P
11,7 %.
(35) The
RMPP
is
an
occupational
pension
scheme
for
RMG’s
employees, including those employees seconded to and
working wholly for POL (
(29) RMG’s
balance
sheet
shows
that
the
company
had
serious

7 ). It is a private sector scheme
in the sense that it operates under normal UK pensions
financial difficulties at the end of the 2010/11 financial
law as applied to private sector companies. As at
year; both its working capital and net operating assets
31 March 2011, the RMPP had approximately 436 000
were negative.
members, of which approximately 130 000 were current
employees accruing benefits in the scheme (active
members), approximately 118
000 were former
(30) According
to
the
projections
provided
by
the
United
employees who had left service before retirement age
Kingdom, RMG will have negative cash headroom […],
and not yet drawn pension benefits (deferred members)
that is to say, it will not have sufficient funds to pay for
and approximately 188 000 were pensioners.
its day-to-day operations, if the notified measures are not
implemented. Consequently, RMG will also be unable to
repay its existing loan facilities when they fall due in […].
(36) The RMPP is governed by the Third Principal Trust Deed
and Rules dated 21 December 2009, as subsequently
(31) On
the
basis
of
these
factors,
RMG
will
face
severe
amended (the ‘Trust Deed’). The principal employer in
difficulty in meeting its payment obligations by […]
relation to the scheme is RMG and the trustee is a
and subsequently will be unable to undertake a restruc
company, Royal Mail Pensions Trustees Limited (‘the
turing program and return to viability out of its own
Trustee’). In addition to the Trust Deed, the obligations
resources, leaving the firm in a situation where it must
of the Trustee and RMG under the RMPP are governed
rely on State aid in order to ensure a return to economic
by legislation introduced by the Department for Work
viability and the uninterrupted availability of the public
and Pensions applying to occupational schemes, set out,
service.
principally, in the Pension Schemes Act 1993, the
Pensions Act 1995 and the Pensions Act 2004. The
RMPP falls within the jurisdiction of the UK Pensions
2.3. Measures under investigation
Regulator.
2.3.1. Pension relief
(32) The
Postal
Services
Act
2011
envisages
that
the
United
(37) The
RMPP
is
a
defined
benefit
scheme,
that
is,
benefits
Kingdom will assume responsibility for certain of the
are determined by reference to a pension of a target
accrued liabilities under the Royal Mail Pension Plan
amount at normal retirement age, related to the
(‘RMPP’). The proposed measure will relieve RMG of
amount of the member’s annual pay and length of
the obligation to make good the deficit that has arisen
service with the employer. This is in contrast to
under that scheme, thus relieving RMG of a significant
defined contribution schemes under which only the
financial burden.
level of the contributions required from the employer/
employee is specified. The contributions are invested and
when a member retires, the value of the accumulated
(33) According to the United Kingdom, the size and volatility
fund is used to provide the member with an income
of the RMPP is out of all proportion to RMG’s current
for life.
business and has proved to be a severe handicap to
RMG’s ability to compete on its own merits in the
liberalised United Kingdom postal market. The United
Kingdom believes that by taking certain liabilities over
(38) There are two main types of defined benefit scheme,
from the RMPP and thereby contributing to the resto
known as final salary and career average. A final salary
ration of RMG’s viability, RMG will, as the sole universal
scheme provides a pension based on a stated fraction or
service provider in the United Kingdom, have the ability
percentage of the employee’s final pensionable salary for
to adapt to the liberalised industry environment through
each year of pensionable service. In contrast, a career
modernisation. The pension relief, as a consequence, will
average scheme provides a pension based on a stated
remove one of the principal obstacles to attracting
percentage of the employee’s average pay over the
private sector capital to RMG.
whole period of pensionable service (usually adjusted in
some way to take account of inflation) for each year of
pensionable service.
(34) Besides
the RMPP, RMG currently
sponsors 3 other
pension plans: the Royal Mail Senior Executives
( 7 ) The RMPP and the other UK schemes sponsored by RMG do not
Pension Plan (‘RMSEPP’), the Royal Mail Retirement
cover employees of GLS.

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L 279/44
EN
Official Journal of the European Union
12.10.2012
(39) Until
April
2008,
benefits
accrued
by
members
of
the
(i) from 1 April 2009 to 31 March 2047: annual deficit
RMPP were calculated on the basis of a final salary
payments of GBP 282 million per annum increasing
method. However, in April 2008 RMG implemented
in line with retail prices inflation;
pension reforms by amendment of the RMPP rules
which included changes to benefits accrued in respect
of service from 1 April 2008, such that they are now
calculated on the basis of a career average salary method
(ii) from 1 April 2013 to 31 March 2023: additional
rather than a final salary method (although benefits
contributions of 4,0 % of members’ contributions.
accrued in respect of service prior to that date will
continue to be linked to a member’s salary at the date
of leaving service). Other reforms implemented on
1 April 2008 included raising the retirement age to 65
for service accrued from 1 April 2010 (benefits built up
(44) POL
contributes
a
7
%
share
of
the
deficit
payments.
The
before that date can still be taken at age 60 without an
share is calculated on the basis of the number of
early retirement reduction being applied) and closure of
employees seconded to POL in relation to RMG’s total
the RMPP to new members and joiners with effect from
number of employees. POL’s annual contribution to the
1 April 2008. The RMPP was replaced with a defined
pension deficit in the 2010-11 financial year was GBP
contribution scheme for new members and joiners after
21 million.
1 April 2008, the RMDCPP.
P r e v i o u s m e a s u r e s t o f u n d t h e p e n s i o n
R e l i e f o f p e n s i o n d e f i c i t
d e f i c i t o f t h e R M P P
(45) The
United
Kingdom
authorities
propose
to
set
up
a
new
(40) The
United
Kingdom
points
out
that
RMG’s
ability
to
statutory pension scheme which will be a liability of the
amend the RMPP over time has been materially
UK Government and will have no legal connection to
constrained. These constraints derive from general UK
RMG or the RMPP. Certain part of accrued liabilities
pensions law and from specific features of the RMPP
and assets held by RMPP will be transferred to the new
scheme.
scheme. It is intended that pension benefits accrued up to
31 March 2012 will be transferred to the scheme. The
persons to whom this proposal applies include current
pensioners, deferred members and active members of the
(41) Under
UK
law
RMG
has
no
power
of
veto
over
its
RMPP.
contribution rate to the RMPP. The contribution rate is
normally agreed between the sponsoring employer and
the trustee of a pension scheme, but against a back
ground where a failure to reach agreement within 15
months of the effective date of a valuation will lead to
(46) In broad terms, it is estimated that the new pension
contributions being determined by the UK Pensions
scheme will be taking over GBP 32 200 million of
Regulator, which was established on 6 April 2005 by
liabilities and associated assets of GBP 27 700 million
the Pensions Act 2004 and which enforces compliance
(based on the 31 March 2011 actuarial valuation
with pensions legislation. The Pensions Regulator has
figures) and hence a deficit of GBP 4 500 million. After
made clear, among other things, that it expects
the pension relief on 1 April 2012, RMG will continue
schemes to have a certain level of solvency and that it
paying only the normal pension contributions for all
expects trustees to seek recovery of any deficit as against
members of the RMPP, who still work for RMG, and
that technical provisions funding target from the spon
consequently only remain liable for new pension rights
soring employer ‘as quickly as the employer can
acquired after March 2012 (hereafter referred to as on-
reasonably afford’.
going RMPP scheme).
(42) In
that
context,
RMG
agreed
a
memorandum
of
under
standing with the Trustee in June 2006 to fund the
(47) The
on-going
RMPP
scheme
will
immediately
after
the
RMPP deficit over 17 years, in addition to the annual
pension relief consist of approximately GBP 2 100 mil
payments RMG makes to the RMPP to fund the cost of
lion ( 9 ) of liabilities and a matching amount of assets
the accrued benefits. Conditions included the estab
remaining with RMG. RMG will continue to bear all
lishment of the escrow accounts totalling GBP 1 billion
future service costs, including liability for any current
secured in favour of the RMPP that were the subject of
obligations under the RMPP to maintain a continuing
Commission Decision 2009/613/EC (
final salary link together with certain enhancements

8 ).
(for example on early retirement) in respect of the
historic pension benefits. This means that after the
pension relief, RMG will continue to bear the risk that
(43) On
30
June
2010,
RMG
agreed
on
a
further
recovery
the historic liabilities for deferred members may increase
plan with the Trustee aiming to fund the RMPP deficit by
by reason of any salary increases, which exceed price
March 2047, by paying the following annual contribu
tions:
( 9 ) Based on latest estimates. Precise amount will depend on market
movements to March 2012 and could be more or less than this
( 8 ) OJ L 210, 14.8.2009, p. 16.
amount.

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EN
12.10.2012 Official
Journal
of
the
European
Union L
279/45
inflation, as the pension benefits have to be linked to the
of the deficit RMG cannot overcome its financial
current final salary level. RMG would also retain respon
difficulties with its own resources or with funds
sibility for the existing RMSEPP which shows liabilities of
obtained from market sources.
GBP 300 million and a deficit of approximately GBP
30 million (as valued at 31 March 2011).
(52) Therefore, in addition to the pension relief, the United
2.3.2. Restructuring aid
Kingdom also notified certain measures to strengthen
RMG’s balance sheet, consisting of:
T h e R e s t r u c t u r i n g o f R M G
(48) To
address
its
financial
difficulties,
in
June
2011
RMG
drew up a restructuring plan covering the period 2008-
(i) writing off a certain amount of debt owed by RMG
2016.
to the UK Government (hereafter ‘debt reduction
measures’), expected to be up to GBP 1 700 million
(plus accrued interest); and
(49) RMG’s
plans,
which
are
focused
primarily
on
reduction
of costs and revenue diversification, build on the
significant restructuring measures that RMG has taken
since 2002 (including implementing significant changes
(ii) RMH making available certain amounts in the ‘Mails
to the RMPP) to modernise its business and drive costs
Reserve’ ( 10 ) to RMG by way of a revolving credit
down. RMG’s plan of June 2011 for restoring the
facility with a maximum drawdown of GBP
company to viability is split into five key areas:
200 million.
(i) operational modernisation, covering changes in all
2.4. Grounds for initiating the in-depth investigation
areas of RMG’s activities and results in significant
cost savings for the business;
(53) The
United
Kingdom
contended
in
its
notification
that
the pension relief could be found compatible with the
internal market as legacy costs from the pre-liberalisation
period, based on the Commission practice. Furthermore,
(ii) corporate and back-office restructuring measures;
it claimed that the proposed measures are in line with
the Guidelines on State aid for rescuing and restructuring
firms in difficulty ( 11 ) (‘the R&R Guidelines’). The United
Kingdom did not invoke Article 106(2) of the Treaty as
(iii) commercial transformation;
justification for the notified measures during the
procedure.
(iv) investment in a new IT Platform;
(54) In
its
Decision
to
initiate
the
formal
investigation,
the
Commission questioned whether the pension relief
(v) cash generation initiatives.
could be found compatible as compensation for an
exceptional burden resulting from RMG’s past status as
public sector monopoly. In 2007, the Commission
indeed approved a French reform regarding the
(50) The
restructuring
plan
aims
to
restore
long-term
viability
financing of the current and future pensions of the
of RMG. According to the United Kingdom, the ability to
employees of La Poste with a civil servant status ( 12 ).
take structurally high levels of fixed cost out, enhance the
However, while the 2007 decision ensured that La
overall regulatory environment and diversify revenues to
Poste’s effective social security costs were comparable
replace lost revenues from declining mails volumes will
to those of competitors; it seemed that relieving RMG
promote a viable RMG capable of attracting private
from its whole pension deficit would put it in a better
sector investment to ensure its long term future.
( 10 ) RMG holds certain investments in Government securities or
National Loan Fund deposits, classed as current assets and often
referred to as the ‘gilts’. They are subject to a specific legal regime of
D e b t r e d u c t i o n m e a s u r e s
directions by the UK authorities under section 72 of the Post Office
Act 2000. Following directions dated 30 January 2003, RMG
(51) The
United Kingdom claims that the restoration of
placed these assets in a special reserve (‘the Mails Reserve’), to be
RMG’s long term viability is a central policy objective
used for financing specific measures as directed.
in order to achieve universal availability and effective
( 11 ) OJ C 244, 1.10.2004, p. 2.
discharge of the USO. According to the United
( 12 ) Commission Decision 2008/204/EC of 10 October 2007 on the
State aid implemented by France in connection with the reform of
Kingdom, the pension relief alone will not be sufficient
the arrangements for financing the retirement pensions of civil
to secure RMG’s long term viability: even after the relief
servants working for La Poste, (OJ L 63, 7.3.2008, p. 16).

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L 279/46
EN
Official Journal of the European Union
12.10.2012
position than an average UK company. The Commission
L a b o u r - r e l a t e d r e s t r u c t u r i n g
wondered therefore whether the charges of which RMG
was relieved correspond entirely to legacy costs within
(60) Labour related restructuring is at the heart of the RMG’s
the meaning of the case-law of the Court of Justice of the
changes to ensure that a financially sustainable universal
European Union and whether there indeed would be a
service can be provided for the long term in the United
level playing field once the relief was implemented.
Kingdom. RMG has already made progress and intends to
significantly reduce its workforce further through a
programme of voluntary redundancy and natural
attrition over the period of the plan. This alone
(55) Furthermore,
the
Commission
also
expressed
reservations
represents around one third of the total relevant restruc
about the restructuring plan’s compatibility with the R&R
turing costs from the plan, and will reduce significantly
Guidelines, notably regarding the prospect of a return to
one of RMG’s core costs.
viability, the extent of RMG’s contribution, and the level
of compensatory measures.
(61) The
restructuring
plan
envisages,
over
the
course
of
the
restructuring period, a reduction in RMG’s headcount in
(56) According to the Commission, the United Kingdom did
UK Letters & Parcels and International (UKLPI) from
not convincingly demonstrate that the originally
approximately 160 000 people at the start of the year
submitted restructuring plan would comply with the
ending in March 2011 to approximately […] people in
R&R Guidelines. In particular, the Commission doubted
March 2015. This represents a total reduction of approxi
that RMG’s role as the sole universal service provider and
mately […] in UKLPI between March 2011 and March
the liabilities resulting from its public sector monopoly
2015, representing the equivalent of around […] a year.
legacy would justify mitigating the conditions of the R&R
This labour-related restructuring includes a reduction of
Guidelines and notably those ensuring that competition
close to […] central managers (over 1 000 of whom had
distortions are limited and that the cost of restructuring
already left by March 2011). Labour cost savings of GBP
is shared by the required 50 % own contribution.
[…] million in real terms are forecast to be achieved
between March 2010 and March 2015.
(57) The
Commission
also
considered
that
the
duration
of
the
original restructuring plan from 2008 to 2016 was
particularly long and that the projections in the
(62) The labour changes proposed will impact virtually every
original restructuring plan were sensitive to changes in
part of the RMG’s business. For example:
the assumptions such as total mail volumes. The
Commission therefore expressed doubts as to the resto
ration of long-term viability of RMG by the implemen
tation of the notified plan and to the robustness of the
(i) outdoor delivery and collections, which are labour
viability projections.
intensive activities with high fixed costs, are being
restructured; the restructuring is focused on
achieving savings including by World Class Mail
(see recital (68)) being introduced with savings
2.5. Modification to the notified measures after the
arising from this comprehensive system for
opening of the formal investigation procedure
improving safety, customer service, quality and
productivity in all delivery offices;
(58) In the course of the discussions with the Commission
during the formal investigation, the United Kingdom
renounced part of the debt reduction of 1 700 million
and reduced the notified debt reduction measures to GBP
(ii) there is a move away from manual labour intensive
1 089 million. Furthermore, the United Kingdom also
processing to automated processing, with
renounced the notified GBP 200
million revolving
corresponding implications for labour;
credit facility. The Commission therefore no longer
considers those measures to be notified but only the
debt reduction measure amounting to GBP
1 089 million.
(iii) close to […] managers in central functions are also
being removed.
(59) Furthermore, during the investigation, the United
Kingdom provided an updated restructuring plan,
covering a shorter restructuring period: 2010-2015.
(63) The key elements of the labour restructuring cost
During that period RMG will undertake operational and
included in the June 2011 restructuring plan are (i)
industrial measures to restructure its business. The plan
redundancy payments, (ii) travel and outplacement costs
for restoring the viability of RMG can be split into the
and (iii) certain exceptional lump sum payments.
following key actions: labour related restructuring,
Redundancy payments are expected to be approximately
structural restructuring to reduce its capacity and restruc
GBP […] million from March 2010 to March 2015.
turing of IT systems.
Travel and outplacement costs (which are paid to staff

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EN
12.10.2012 Official
Journal
of
the
European
Union L
279/47
that have been retained but must now work at alternative
World Class Mail by the end of financial year 2011/2012
facilities as part of the restructuring of RMG’s infra
and World Class Mail is also being introduced in delivery
structure, including the closure of various mail centres)
offices.
will amount to a cost of approximately GBP […] million
by 2014/15. Exceptional lump sum payments — which
are required to sustain the pace and depth of change as
they form a key part of the 2010 modernisation
agreement with the Communication Workers Union
(69) In
addition,
the
deployment
of
intelligent
letter
sorting
amount to GBP […] million. Those payments would
machines will bring about a change in automated sorting
not have been required with a slower, more conven
and reduce the costs associated with manual sorting.
tional, pace of modernisation.
These machines are considerably faster than existing

methods and equipment, which have been used by
RMG for nearly 20 years.
(64) Those
key elements of labour restructuring together
amount to approximately half of the total relevant
restructuring costs during the period from March 2010
(70) Further
to
this,
the
deployment
of
walk
sequencing,
to March 2015.
which automates the sorting of letters to the order of
delivery is being implemented. This is a critical part of
the restructuring and requires the acquisition and
deployment of compact sorter sequencer machines and
S t r u c t u r a l
r e s t r u c t u r i n g
t o
r e d u c e
results in changes to working practices for postmen and
c a p a c i t y
women working in delivery in particular. Automated
sequencing of letters reduces manual sorting in delivery
(65) In addition to the measures to address the labour force at
offices (and associated costs), and therefore allows for
RMG, the notified restructuring plan includes structural
more efficient scheduling of start and finish times for
restructuring to reduce capacity in the business over the
delivery staff. Walk sequencing is a structural change to
period. In total, the amount spent on structural restruc
mail processing for RMG that will increase its produc
turing represents approximately one third of the total
tivity. RMG sequenced 0 % of mail in 2008; 1 % of mail
relevant restructuring costs during the period from
in 2009, and 50 % by August 2011.
March 2010 to March 2015. In particular this element
of the restructuring relates to the significant reduction of
the mail centre network, which has a corresponding
impact on labour.
(71) RMG’s
restructuring
plan
includes
the
automation
of
sorting of small parcels which is currently done
manually. The company is determining the best
(66) Structural
restructuring
also
consists
of
automation
and,
solution to deploy during the restructuring period.
critically, new delivery methods to enable longer more
flexible delivery spans. This again has significant impli
cations for the workforce and forms a key part of
restructuring.
(72) Finally,
new
delivery
methods
allow
RMG
to
change
from
traditional delivery methods (on foot, by bicycle) to
delivery mainly using secure trolleys (either manual or
(67) The restructuring plan includes a one-off property
powered) and vans. These new methods represent a
rationalisation programme reducing the number of mail
major change for RMG and the change being imple
centres from 64 at the start of the financial year 2010/11
mented, including the expenditure incurred, will facilitate
to […] by March 2015, significantly reducing the RMG’s
longer, flexible delivery spans. This, in turn, allows RMG
footprint and streamlining its operations. The restruc
to reduce the number of delivery routes and outdoor
turing plan therefore envisages closure of […] mail
delivery operating costs.
centres between 2010/11 and 2014/15 which equates
to a […] reduction across the network. During the year
from March 2010 to March 2011 a total of 5 mail
centres were closed.
I T r e s t r u c t u r i n g
(73) The restructuring includes business critical capital
investment in IT over the period of the plan. To
(68) In
conjunction
with
this,
RMG
is
introducing
World
complement the labour changes, RMG is in the process
Class Mail in all mail centres which will remain open.
of introducing handheld electronic devices to replace
World Class Mail is a comprehensive system for
paper-based processes and therefore increase efficiency.
improving safety, customer service, quality and produc
One of their basic functions is to store customer
tivity, and reducing breakdowns. World Class
signatures which confirm receipt of tracked items. The
performance is achieved by involving all employees in
devices allow RMG to track items in real time. This
attacking wasted time and resources caused by sub-
removes the need for further processing of signatures
standard reliability, and operating performance of
and receipts on paper when the postman or woman
processing systems. All mail centres will be part of
has finished deliveries.

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L 279/48
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Official Journal of the European Union
12.10.2012
(74) In
addition,
RMG
will
be
making
other
investment
in
IT
(iii) have positive operation free cashflow of GBP […]
and operations — including significant investment in
million.
several critical areas:
(i) improving operational reporting capabilities;
(78) These
forecasts
are
claimed
to
prove
the
robustness
and
strength of the proposed restructuring.
(ii) modernisation of human resources processes;
3. COMMENTS FROM INTERESTED THIRD PARTIES
(iii) enabling automatic reading of address information
(79) Comments
on
the
opening
decision
were
received
from
a
and use of the information for performance
wide range of interested third parties including RMG’s
reporting;
smaller domestic competitors and their industry associ
ations, its larger international peers, pressure groups and
a workers union representing the majority of RMG staff.
(iv) […]; and
(v) […].
C o m m e n t s
s u b m i t t e d
b y
t h e
M a i l

C o m p e t i t i o n F o r u m
(80) As
an
industry
association
of
smaller
postal
operators
in
(75) The
investment
in
systems
and
IT
restructuring
in
total
represents approximately one fifth of the total relevant
the United Kingdom, the Mail Competition Forum
restructuring costs during the period from March 2010
(‘MCF’), places a great emphasis on the importance of a
to March 2015.
sound and viable RMG as the only company capable of
fulfilling the universal service obligation in the United
Kingdom, whilst at the same time voicing concerns
C o n c l u s i o n s
that an artificially strengthened RMG could squeeze its
smaller competitors out of an already difficult market by
(76) According
to
the
United
Kingdom,
after
the
implemen
means of predatory pricing, margin squeeze and denial of
tation of the pensions’ measures and the completion of
access to essential facilities. In this context the MCF urges
the restructuring measures, RMG is forecast to be in a
far reaching ex ante regulatory measures to protect
position to:
smaller competitors and ensure that they have access to
the Royal Mail network.
(i) cover its costs including depreciation and financial
charges — in particular the company will have a
(81) MCF
agrees
with
the
United
Kingdom
in
its
assessment
positive free cashflow after interest and tax of GBP
that RMG is a firm in difficulty and agrees with the
[…] million by March 2015;
application of the R&R Guidelines as the appropriate
framework to assess the proposed measures. Moreover,
(ii) make a return on capital which will enable it to
it notes that the United Kingdom does not seek to justify
compete in the marketplace on its own merit —
the aid on grounds that such aid is necessary to sustain
in particular the company will make a positive
an SGEI, but it records that in case that any SGEI
return on invested capital of […] by March 2015;
compensation to RMG would be authorised by the
and
Commission, it would need to be coupled with
rigorous safeguards to protect competition.
(iii) generate cash from the underlying business (pre-asset
sales) — in particular the company will have a
(82) The
MCF
believes
that
the
measures
should
be
confined
positive operating free cashflow of GBP […] million.
to the strict minimum necessary and designed to deal
with the pension deficit alone. MCF rejects any balance
sheet repair measures or any other measures undertaken
(77) This conclusion also applies on the basis of the
with a view to making the firm more attractive for a
reasonable downside scenario (an additional […]
market economy investor. In this context MCF
decline in volumes over the period of the restructuring
expresses scepticism about a privatisation of the firm.
plan) submitted to the Commission on 30 November
2011 as part of the sensitivity analysis. Under such a
downside scenario, by March 2015 RMG would be in
(83) With
respect
to
the
own
contribution
of
50
%
required
a position to:
under the R&R Guidelines for large undertakings, MCF
urges a strict adherence to the prescribed threshold and
(i) have a positive free cashflow after interest and tax of
recommends the divestiture of assets and seizure of loss-
GBP […] million by March 2015;
making activities to finance this.
(ii) make a positive return on invested capital of […] by
(84) With regards to compensatory measures the MCF
March 2015; and
believes that a number of far reaching structural, fiscal

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12.10.2012 Official
Journal
of
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European
Union L
279/49
and regulatory measures are necessary including a reform
C o m m e n t s s u b m i t t e d b y t h e F r e e a n d
of the UK Postal Services Act with a view to preventing
F a i r P o s t a l I n i t i a t i v e
the RMG from getting additional aid for the same
purpose in the future, a full structural separation of the
(89) The
Free
and
Fair
Postal
Initiative
(‘FFPI’),
a
pressure
retail and network aspects of the business, and an end to
group, generally welcomes the State aid measures in
the VAT exemption enjoyed by RMG for services which
favour of RMG and only voices some concern about
are outside the universal service.
RMGs return to viability according to the restructuring
plan. In light of the current economic climate FFPI
questions the sale prospects and bemoans the lack of a
comprehensive privatisation plan.
C o m m e n t s s u b m i t t e d b y S e c u r e d M a i l
(85) Secured
Mail
points
to
the
importance
of
RMG
for
the
(90) Furthermore the FFPI is keen to point out that all
discharge of the USO in the United Kingdom. At the
requirements of the R&R Guidelines must be met,
same time Secured Mail urges the Commission to
especially as regards the own contribution which FFPI
ensure that RMG will not gain the opportunity to
would like to be substantial (50 %) in line with the
exploit its new found strength in a way which would
R&R Guidelines. Furthermore FFPI considers that far
endanger the smaller competitor’s business model. Just
reaching compensatory measures should necessarily,
as the Mail Competition Forum, Secured Mail emphasises
include the sale of assets which are not essential to the
the need for a sufficient own contribution financed
discharge of the USO and especially guarantees with
through divestiture of assets, and seizure of loss-making
regards to market access for competitors.
activities. Furthermore Secured Mail would like to see
regulatory action like a separation of the network and
retail aspects of RMG businesses.
(91) FFPI
furthermore
submits
that
it
rejects
the
application
of
a legacy cost reasoning pursuant to the EDF ( 13 ) and La
Poste ( 14 ) decisions in this case on the grounds of
C o m m e n t s s u b m i t t e d b y U K M a i l
substantial dissimilarities with the facts in this case,
especially in respect of the pension systems in France
(86) UK
Mail,
a
small
domestic
competitor
comments
that
and the United Kingdom.
whilst the firm generally welcomed State aid to RMG
with a view to safeguarding the effective discharge of
the USO, the measures should only be authorised
C o m m e n t s s u b m i t t e d b y D e u t s c h e P o s t
under strict adherence to the R&R Guidelines.
(92) Deutsche
Post
places
the
aid
requirement
of
RMG
within
the context of the liberalisation and process of the UK
postal market and the consequential requirement for the
C o m m e n t s s u b m i t t e d b y D X
incumbent ex- monopolist to adapt to the conditions of
a competitive postal market and modernise its business
(87) DX,
another
small
domestic
competitor
also
expresses
practices accordingly. In this context Deutsche Post urges
concerns about strengthening RMG’s position on the
the Commission to ensure a uniform application of the
UK market in an unchecked fashion and advocates
law across all Member States in this regard. Subsequently
compensatory measures in order to make up for
Deutsche Post rejects the reasoning put forward by the
potential distortions of competition.
United Kingdom that RMG presented an ‘exceptional
case’ within the meaning of the R&R Guidelines and
voices doubts about the applicability of the R&R
Guidelines to the case.
C o m m e n t s s u b m i t t e d b y t h e C o m m u n i
c a t i o n W o r k e r s U n i o n
(88) The
Communication
Workers
Union
(‘CWU’)
places
the
(93) In
this
context,
Deutsche
Post
also
argues
on
the
basis
of
measures in the context of the wider modernisation
the judgment of the Court in Combus ( 15 ) that, in the
efforts of RMG over the past years. CWU welcomes
course of the privatisation of formerly State-owned
the aid measures but voices concerns about the level of
universal service providers, the public compensation of
stress put on the workforce by the restructuring process
pension costs — which go beyond the level normally
and points to the profound and sustained changes in the
assumed by private competitors — do not constitute
general working condition of Royal Mail employees.
aid. Deutsche Post claims that the relief of RMG’s
CWU asks the Commission to confine restructuring to
pension deficit should escape the prohibition of Art
a minimum with a view to limit the adverse effects on
107 of the Treaty on the grounds that this measure is
the general working conditions. CWU rejects an appraisal
designed to rectify a structural disadvantage within the
under the R&R Guidelines and opines that the
meaning of the Combus judgment.
Commission should authorise the aid as compensation
for a service of general economic interest instead. CWU
( 13 ) Commission Decision 2005/145/EC of 16 December 2003 on the
believes that no own contribution should be required
State aid granted by France to EDF and the electricity and gas
from RMG and advocates a generous appreciation of
industries (OJ L 49, 22.2.2005, p. 9).
( 14 ) See footnote 12.
the aid measures with a view to making the transition
( 15 ) Case T-157-01 Danske Busvognmnd v Commission [2004] ECR
process as smooth as possible for RMG’s workers.
II-917.

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L 279/50
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Official Journal of the European Union
12.10.2012
(94) Deutsche
Post
also
considers
that
the
Commission
would
which would allow for an own contribution below 50 %,
be obliged to take into account that RMG has already
as suggested by the United Kingdom. UPS furthermore
received compensation for its pension deficit in the form
believes in case that the Commission should accept the
of higher stamp prices.
United Kingdom’s reasoning in this regard, the own
contribution should under no circumstances be lower
than 40 % based on the Commission’s decision practice
C o m m e n t s s u b m i t t e d b y T N T
in previous decisions.
(95) TNT
observes
that
the
aid
should
be
no
more
than
the
smallest amount strictly necessary to rescue RMG from
its financial difficulties. At the same time TNT is
(102) With regards to the legacy cost reasoning under
concerned that RMG could use its new found strength
Article 107(3) of the Treaty, UPS points out that the
to unduly restrict competition on the UK postal market
measures could not be justified upon the basis of
in a bid to regain control of the market and recoup lost
precedent (La Poste) or as a matter of principle, but
market shares.
require a comprehensive balancing test in which the
positive effects of the measure are balanced against the
way in which it distorts competition.
(96) In order to prevent such a move, TNT asks for far
reaching measures as a compensation for State aid,
including a guarantee of future network access, if
possible by way of unbundling, and the end of the
4. COMMENTS FROM THE UK AUTHORITIES
VAT exemption to strengthen the evolution of
competition in the end to end delivery markets.
4.1. On the existence of aid and aid beneficiaries
(103) The United Kingdom accepts that the notified pension
relief and debt reduction measures constitute State aid
(97) With
respect
to
the
proper
legal
framework,
TNT
agrees
with the United Kingdom that the measures should be
within the meaning of Article 107(1) of the Treaty.
assessed as restructuring aid pursuant to the R&R
Guidelines and rejects the notion of an analysis under
Article 106(2) of the Treaty.
(104) The United Kingdom maintains that there is no aid
involved in the tax treatment of the transfer of net
liabilities from RMG to the United Kingdom since the
C o m m e n t s s u b m i t t e d b y U P S
pension liabilities currently in RMG’s accounts represent
(98) In
its statement UPS opines that the proposed aid
amounts which are as yet unpaid, and they are only tax
measures could have severe implications on the postal
deductible when payment is actually made. As such,
market and produce effects beyond the markets directly
RMG has not claimed tax relief for any of the liabilities
targeted — in the express service parcel markets in the
in its accounts. According to the United Kingdom, it
United Kingdom and Europe. In this context UPS raises
would be inequitable for RMG to be charged tax on
doubts about the way in which the advantages for RMG
the release of provisions, when it has not received tax
have been calculated and the applicability of the R&R
relief on those provisions in the first place ( 16 ).
Guidelines to this case.
(105) In response to the Commission’s assertion in the opening
(99) Furthermore,
UPS
has
doubts
about
the
compatibility
of
decision that it is unclear whether POL would benefit
the measures under Article 107(3) of the Treaty and the
from the debt reduction measures, the United Kingdom
R&R Guidelines.
claims that POL’s funding and accounting is ring-fenced
from that of RMG. According to the United Kingdom,
this is further assured by the fact that the businesses are
(100) With regard to compensatory measures UPS contends
legally separated.
that the required measures must be proportional to the
distortions of competition. UPS thereby rejects the
notion forwarded by the United Kingdom that the
burden of discharging the public service obligation
4.2. On the compatibility of the pension relief as
should be taken into account when assessing the
compensation for legacy pension costs under
measures under the R&R Guidelines. UPS places a
Article 107(3)(c) of the Treaty
particular emphasis on the need to analyse and account
for potential spill- over effects into neighbouring
(106) The United Kingdom first of all maintains that there are
markets, should the measures not only strengthen RMG
significant parallels between the present case and the La
but also its subsidiaries, especially GLS.
Poste case. Although the United Kingdom acknowledges
that the UK pension environment is different to that of
France, and there is no UK specific comparator to RMG’s
(101) With respect to the amount of aid, UPS emphasises that
scheme, this does not mean that the La Poste precedent
the amount should be limited to the strict minimum
necessary and that a substantial own contribution
( 16 ) In reference to the Commission’s decision in the British Energy case
should be made by RMG. In this context UPS expresses
(Case No C52/03, Decision of 22 September 2004 (OJ L 142,
doubts over the presence of exceptional circumstances
6.6.2005, p. 26)).

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12.10.2012 Official
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of
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European
Union L
279/51
cannot be applied. The United Kingdom strongly believes
(110) This additional analysis compared the RMPP to the
that there are sufficient similarities between the two cases
average private sector defined benefit scheme and
to merit a full application of the precedent, because both
according to the United Kingdom demonstrates that
cases involve material economic risk and uncapped
approximately GBP 6
900
million of the RMPP’s
liabilities and because both cases involved inflexible
pension liabilities relate to abnormally high costs when
schemes.
compared to the average scheme.
(107) Furthermore, the United Kingdom considers that, whilst
(111) This exceeds the level of the RMPP’s pension deficit of
there are parallels between the cases, the proposed
GBP 4 500 million on an accounting basis at March
solution for RMG is not as extensive or material as
2011, which, according to the United Kingdom,
that for La Poste because the United Kingdom is only
suggests that all of RMPP’s pension deficit could be
relieving RMG of its past liabilities and because the
considered abnormal.
pension liabilities assumed by the United Kingdom are
accompanied by the majority of the RMPP pension assets,
such that the aid concerned is limited to the deficit rather
than the amount of the liabilities.
4.3. On the compatibility of the debt reduction
measures under the R&R Guidelines
(112) The United Kingdom first of all maintains that the
(108) The United Kingdom also contends that the scale of
Commission should apply the R&R Guidelines in such
RMG’s pension liabilities is unusual due to a combination
a way as to avoid a negative effect on the availability of
of factors that include the scale of RMG’s employment
the universal service in the United Kingdom.
costs, the indexation and early retirement arrangements,
Consequently, the United Kingdom points out that
and the enhanced redundancy terms imposed by
RMG is indispensable to the availability of the universal
collective agreements with the unions. The United
service and argues that the difficulties of the firm
Kingdom submits that these liabilities can be regarded
endanger not only the survival of RMG as an undertaking
as ‘stranded costs’ within the meaning of previous
but also the availability of the universal service in the
Commission decisions on pension liabilities in the
United Kingdom. The United Kingdom therefore asks the
energy sector. This means that the pension deficit
Commission to take the legislative intent of Article 106(2)
should be regarded as an irreversible (social) investment
of the Treaty into account when assessing the measures
made before the liberalisation of the sector which turned
under the R&R Guidelines. In support of its argument the
unprofitable under the new conditions of sector liberali
United Kingdom points to case-law from the Court of
sation which could not be foreseen at the time when the
Justice according to which the rules of the Treaty should
decision was taken. The United Kingdom bases its
be applied in consideration of the effective discharge and
stranded cost reasoning on the following factors:
undistorted availability of the universal service in cases
where an undertakings ability to deliver a core service is
threatened, and in particular where the survival of the
undertaking delivering this service is threatened ( 17 ).
(i) the shape and scale of the liabilities are directly
linked to RMG’s civil service and monopoly legacy;
(113) Hereby, the United Kingdom submits that the compati
bility criteria under the R&R Guidelines should be
(ii) the RMPP was less problematic to manage when it
qualified to the extent required to allow the measures
was in a monopoly environment; and
to be implemented as contemplated in the restructuring
plan in order to ensure that the UK Government’s ability
to meet its obligations under the Postal Services Directive
is not jeopardised.
(iii) the generous entitlements granted to members,
combined with the sheer number of active,
deferred and retired members (which was
unavoidable given RMG’s USO), represent additional
(114) Furthermore, the United Kingdom maintains that RMG is
pension costs that RMG’s competitors do not have
to be considered as a firm in difficulty within the
to bear.
meaning of the R&R Guidelines i.e. a firm that — bar
State intervention — would be unable to obtain the
necessary capital to stem losses which endanger its very
survival from either its shareholders or market sources. In
(109) During the course of the investigation, the United
this respect the United Kingdom points to the severe
Kingdom has also provided further information on the
financial difficulties of the firm caused by diminishing
abnormal nature of RMG’s pension liabilities, which
revenues, the considerable size of the pension deficit
would be relieved as part of the UK Government’s
which causes a deeply troublesome balance sheet, and
proposals. It further developed the initial analysis
projected shortages in its cash flow positions.
carried out by the expert Towers Watson who
examined the level of abnormality inherent in the RMPP.
( 17 ) Commission v France, C-159/94, ECR 1997, I-5815, paragraph 59.

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(115) In its submissions, the United Kingdom provided much
associated with the restructuring activity set out in
more information on the restructuring plan. In particular
section 2.5.
it presented:
(121) The United Kingdom considers that any distortion of
(i) a more detailed description of the operational and
competition arising from the notified measures will be
industrial measures which RMG is undertaking to
minimal. It also reiterates that RMG’s subsidiary GLS is
restructure its business and in respect of which the
not directly impacted by the measures and there will
notified UK restructuring measures would also
therefore be no impact on competition from the
provide financial support;
measures in the European parcels and express markets
in which GLS operates.
(ii) the United Kingdom’s clarification about the
duration of the restructuring plan;
(122) As regards compensatory measures, the United Kingdom
maintains that the Commission should consider the
(iii) reassurance that, on the basis of the restructuring
extent to which this principle should be applied in
plan, the future viability of RMG is ensured, even
order to avoid any action which would directly or indi
in a reasonable downside scenario;
rectly obstruct RMG in its performance of the universal
service.
(iv) a clarification of the full extent of own contribution
which RMG is providing towards its restructuring.
4.4. On the comments from third parties
(123) In response to the third party submissions the United
(116) As regards the length of the restructuring plan, the
Kingdom addresses the issues at hand thematically.
United Kingdom contends that the Commission should
take into account the pace at which it is possible to roll
out the scale of operational restructuring required having
(124) In response to the fears of potential spill-over effects on
regard to the scale of RMG’s operations, its industrial
neighbouring markets via RMG subsidiary GLS the
relations environment and its obligation to continue
United Kingdom elaborates that GLS is not benefitting
providing the universal service to specified quality
from the proposed aid measures due to the fact that GLS
standards throughout the process.
employees are neither currently nor have ever been part
of the RMPP, and that its pension system has no
connection whatsoever to the RMPP, making spill over
(117) As regards the restoration of the long-term viability and
effects impossible. Furthermore the United Kingdom
the deliverability of the restructuring plan, according to
stresses that the measures, however implemented will
the United Kingdom it has been sufficiently demonstrated
not have any effect any cash position of GLS.
in the restructuring plan that RMG will return to viability
by the end of the restructuring period in accordance with
the R&R Guidelines.
(125) In response to comments which question the level of
debt deriving from the statutory pension contribution,
the United Kingdom asserts that the size of the deficit
(118) The United Kingdom believes, based on the assessment
was directly linked to the legacy costs incurred and that
of its financial advisors, that the delivery of the restruc
RMG should therefore be relieved of the deficit in its
turing plan will restore RMG to viability by the end of
entirety.
financial year 2014/15 (that is to say by the end of
March 2015). In practice this means that after the imple
mentation of the pension relief and the completion of
the restructuring measures which are relevant for State
(126) With regards to the general compatibility of the measures
aid purposes, the United Kingdom forecasts that RMG
with the R&R Guidelines the United Kingdom considers
should be in a position to bear all its costs, including
that the proposed measures fit within the scope of the
depreciation and financial charges. Moreover the
R&R Guidelines. Furthermore the United Kingdom
expected return on capital would be enough to enable
maintains its position expressed in the notification that
the restructured RMG to compete in the market place on
the Commission should undertake its assessment of the
its own merits.
proposed measures under Article 107(3) of the Treaty in
the spirit of Article 106(2) of the Treaty.
(119) As regards the own contribution requirement, the view
of the United Kingdom remains that the particular
(127) In response to comments questioning the long term
circumstances of this case justify a flexible approach to
viability of RMG after the aid is granted, the United
own contribution.
Kingdom rejects the concerns of the interested parties
and submits that on the basis of the independent
advice from its economic advisers, it firmly believed
(120) Nevertheless, the United Kingdom has clarified how RMG
that RMG will return to viability and prosper in the
is also using its own resources to fund the costs
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(128) The United Kingdom rejects comments alleging that the
United Kingdom and French pension systems a sufficient
amount of aid was not limited to the strict minimum
logical analogy remained which allowed for a legacy cost
necessary and in essence aimed at making RMG more
reasoning to be applied to this case.
attractive to potential investors with a view to realise a
successful privatisation in the future. It explains that the
measures were specifically designed to spend only the
(134) In response to comments which recommended assessing
strict minimum necessary to secure the future of the
the measures under Article 106(2) of the Treaty rather
universal service and restore RMG to viability to that end.
than the R&R Guidelines pursuant to Article 107 of the
Treaty, the United Kingdom again stresses its position
that such a move would not be the appropriate step
for RMG under the present circumstances. Nevertheless
(129) The United Kingdom furthermore rejects claims that the
the United Kingdom believes that the Commission
measures would lead to an undue distortion of
should bear Article 106(2) of the Treaty in mind in its
competition since the benefits to consumers flowing
application of the R&R Guidelines.
from RMG’s survival would significantly outweigh the
limited degree of market distortion.
(135) The United Kingdom also remarks on Deutsche Post’s
submission calling on the Commission to discount any
(130) In response to the comments on the required own
proceeds already generated in favour of RMG with
contribution, the United Kingdom rejects arguments
respect to its pension liabilities in the form of higher
forwarded by interested parties who question the
prices in price regulated areas from the pension relief.
existence of exceptional circumstances which would
The United Kingdom seeks to refute this line of
justify a deviation from the 50 % own contribution
reasoning and expresses a belief that there is effectively
rule prescribed in the R&R Guidelines. The UK
no double counting between regulated prices and the
maintains its position voiced in the notification that
pension deficit due to the methodology and regulatory
the Commission should take account of RMG’s public
arrangements employed by RMG and the past and
sector heritage and its public service burden when deter
present regulators which ensured that RMG would not
mining appropriate level of own contribution.
receive funds for the same purpose twice.
(136) The United Kingdom rejects Deutsche Post’s submission
(131) Furthermore the United Kingdom points out that the
that the assessment of State aid to former postal
separation of POL from RMG already puts RMG in a
monopolies should be undertaken on an identical set
position where it will lose businesses opportunities in
of criteria to ensure a uniform application of Union
the development of related fields such as personal
law across the Member States, and argues instead that
banking and other usage of POL’s infrastructure.
the Commission should be free to assess each case on its
particular circumstances taking account of the particu
larities of each individual case.
(132) The United Kingdom also firmly rejects calls to divest its
express parcel operator GLS as a compensatory measure
as suggested in some of the third party comments. The
(137) Finally the United Kingdom comments on the many
remarks and suggestions made by some third parties
United Kingdom clarifies that it considers GLS to be a
which the United Kingdom believes to fall within the
vital part of RMG’s overall strategy and that it regards the
scope of regulatory activity rather than this case. With
firm as crucial to the attainment of long term viability. In
regards to those issues, such as structural separation,
this context the United Kingdom is keen to stress that
transparency, review and cessation of certain activities,
diversification of a firms activities into more profitable
the United Kingdom is keen to stress that such
areas is expressly recognised by the R&R Guidelines
measures are of a regulatory nature and should be
(paragraph 17) as a vital part of the recovery of a
raised in the appropriate forum with the national
struggling enterprise. Furthermore the United Kingdom
regulator rather than the context of State aid
believes that a divestiture of GLS would threaten the
proceedings. In addition, the United Kingdom notes
viability of RMG in such a way that it would endanger
that the extent of the VAT exemption for postal
not only the restructuring plan but also the provision of
services in the United Kingdom has already been
the universal service in the United Kingdom.
considered by the Court of Justice of the European
Union ( 20 ) and is expected to be further reviewed by
the UK tax authorities.
(133) The United Kingdom emphasises its position with regards
to the applicability of the legacy cost reasoning along the
lines of the La Poste, EDF ( 18 ) and OTE ( 19 ) case-law to the
5. ASSESSMENT
present case. The United Kingdom maintains its position
that, despite of the technical differences between the
5.1. Existence of aid under Article 107(1) of the
Treaty and potential beneficiaries
( 18 ) See footnotes 12 and 13.
(138) Article 107(1) of the Treaty provides that ‘any aid
( 19 ) Commission Decision 2008/722/EC of 10 May 2007 on State aid
granted by a Member State or through State resources
C 2/06 (ex N 405/05) which Greece is planning to implement for
the early voluntary retirement scheme of OTE (OJ L 243,
11.9.2008, p. 7).
( 20 ) Case C-357/07, TNT Post UK [2009] ECR I-3025.

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in any form whatsoever which distorts or threatens to
not in relation to the causes or objectives of State inter
distort competition by favouring certain undertakings or
vention ( 22 ). The Court of Justice has also held that the
the production of certain goods shall, insofar as it affects
concept of aid includes advantages granted by public
trade between Member States, be incompatible with the
authorities which, in various forms, reduce the charges
internal market’. In determining whether a measure
which are normally included in the budget of an under
constitutes State aid within the meaning of Article 107(1)
taking ( 23 ). The Court of Justice has also clearly stated
of the Treaty, the Commission has to apply the following
that the costs linked to remuneration of employees
criteria: the measure must be imputed to the State and
naturally place a burden on the budgets of undertakings,
use State resources, it must confer an advantage on
irrespective of whether or not those costs stem from
certain undertakings or certain sectors which distorts
legal obligations or collective agreements ( 24 ). In that
competition and it must affect trade between Member
context, the Court of Justice has considered that the
States.
fact that State measures aim to compensate for additional
costs cannot constitute grounds for disqualifying them
from the definition of aid ( 25 ).
5.1.1. State resources
(139) Article 107(1) of the Treaty is concerned with aid
granted by a Member State or through State resources.
(144) The Commission takes the view that the liabilities a
In other words, the measures in question must appear as
company bears under employment legislation or
the result of behaviour attributable to the State or must
collective agreements with trade unions, such as
involve State resources.
pension costs, are part of the normal costs of a
business which a firm has to meet from its own
resources ( 26 ). Those costs are inherent to the economic
activity of the undertaking ( 27 ). It does not matter in that
regard whether the undertaking bears the pension costs
(140) As regards the pension relief, the United Kingdom’s
by directly financing the pensions of its former staff or
taking over of certain of RMG’s accrued pensions
by paying contributions to a pension fund, which in turn
liabilities is financed by State resources and is
uses the collected contributions to finance the pensions
imputable to the State: the United Kingdom will set up
of the companies’ employees. The decisive element is
a new statutory pension scheme which will be a liability
that, in one way or another, undertakings bear the full
of the UK Government and to which certain part of the
costs for pensions.
accrued liabilities held by the RMPP will be transferred.
(141) Concerning the debt reduction measures, those are
(145) As regards the pension relief, the Commission observes
clearly financed from State resources and imputable to
that it will provide a financial advantage to RMG, given
the State: the United Kingdom will write off the debt
the effects on RMG of the deficit in the RMPP, and the
from the outstanding loans that RMG currently owes
obligations RMG has towards the RMPP under UK
to it.
pensions law. These obligations include the payment of
contributions, in particular to address the deficit, and are
reflected in the fact that the deficit is recorded on RMG’s
balance sheet as required by rule 19 of the International
Accounting Standards (hereinafter referred to as IAS).
5.1.2. Selective advantage
Therefore, the Commission finds that the taking over
of certain accrued pensions liabilities by the United
(142) In order to ascertain whether the measures under
Kingdom will relieve RMG of financial obligations that
scrutiny contain elements of State aid, it needs to be
determined whether they confer an economic advantage
on RMG in that they allow it to avoid costs that would
( 22 ) Case 173/73 Italy v Commission [1974] ECR 709, paragraph 13;
Case 310/85 Deufil v Commission [1987] ECR 901, paragraph 8;
normally have had to be borne by its own financial
Case C-241/94 France v Commission ECR I-4551, paragraph 20.
resources and have thus prevented market forces from
( 23 ) C-387/92 Banco Exterior [1994] ECR I-877, paragraph 13; afore
producing their normal effect ( 21 ).
mentioned judgment in Case C-241/94, paragraph 34
( 24 ) Case C-5/01 Belgium v Commission [2002] ECR I-1191,
paragraph 39
( 25 ) Case 30/59 Gezamenlijke Steenkolenmijnen in Limburg v High Authority
[1961] ECR 3, paragraphs 29 and 30; aforementioned judgment in
(143) In this respect, it should also be borne in mind that
Case C-173/73, paragraphs 12 and 13; aforementioned judgment in
Case C-241/94, paragraphs 29 and 35; Case C-251/97 France v
several of the Court of Justice’s rulings contradict the
Commission [1999] ECR I-6639, paragraphs 40, 46 and 47; and
theory that compensation for a structural disadvantage
Joined Cases C-71/09 P, C-73/09 P and C-76/09 P Comitato Venezia
exempts a measure from being qualified as aid. The
vuole vivere v Commission [2011] ECR I-0000, paragraphs 90 to 96.
Court of Justice has constantly held that the existence
( 26 ) La Poste decision (see footnote 12), recital 141, and R&R Guidelines
of aid is to be assessed in relation to the effects and
(see footnote 11), recital 63.
( 27 ) Case T-20/03 Kahla v Commission [2008] ECR II-2305, paragraphs
194 to 197. See also EFTA Court judgment of 22 August 2011 in
( 21 ) E.g. Case C-301/87 France v Commission [1990] ECR I-307,
Case E-14/10, Konkurrenten.no AS v EFTA Surveillance Authority,
paragraph 41.
n.y.p., paragraph 86.

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the undertaking would normally have had to bear and
test ( 28 ). This test asks whether a private creditor in the
thus prevent market forces from producing their normal
same situation would have acted the same way in order
effect.
to maximise its chances to recover its credit. The
Commission observes first that the United Kingdom
has not claimed that it is acting in line with the
behaviour of a private creditor in relation to the debt
reduction measures and therefore it has not provided
(146) Furthermore, the Commission observes that the pension
the Commission with any information that would
relief not only confers an advantage on RMG, but also on
enable it to apply such test. Second, the Commission is
its subsidiary POL as it relieves the latter of the obligation
of the view that a private creditor would not have agreed
under the secondment arrangements with RMG to
to a reduction of his credit without demanding any
contribute to the pension deficit. GLS on the other
further covenants or at least agreements on a resche
hand is not considered to be a beneficiary of the
duling of the reminder of its credit with a view to
pension relief in view of the fact that its employees are
maximise his chances of debt repayment after a
not part of the RMPP, and its pension system has no
successful restructuring. Therefore, the Commission
connection whatsoever to the RMPP.
finds that the debt reduction measures in the restruc
turing plan provide a selective advantage to RMG
within the meaning of Article 107(1) of the Treaty.
(147) The Commission also notes that arguments intended to
demonstrate that the pension costs borne by RMG are
higher than those of its competitors are irrelevant for the
5.1.3. Distortion of competition and affectation of intra-
purpose of finding whether the pension relief constitutes
Union trade
a State aid. However, their comparative level can be taken
into consideration in the assessment of the compatibility
(151) When aid granted by a Member State strengthens the
of the pension relief.
position of an undertaking compared with other under
takings competing in intra-Union trade, the latter must
be regarded as affected by that aid. In accordance with
settled case-law ( 29 ), for a measure to distort competition
and affect trade between Member States it is sufficient
(148) The Commission finds therefore that the pension relief
that the recipient of the aid competes with other under
provides a selective advantage to RMG and POL within
takings on markets open to competition.
the meaning of Article 107(1) of the Treaty.
(152) The UK postal market was fully opened to competition
(149) As regards the non-taxation of the release of the
in 2006, while already being open to competition before
provisions made in the accounts as a result of the
that date in certain market segments (for example
pension deficit, the Commission accepts the argument
delivery of parcels and delivery of bulk mail in case of
of the United Kingdom that this is justified because the
postings above 4 000 items and in general any postal
building up of the provisions could not be deducted
service that was not reserved to a specific undertaking).
from tax. The pension liabilities currently in RMG’s
In this context, it is sufficient to point out that RMG is
accounts represent amounts which are as yet unpaid
competing with companies established in other Member
under the RMPP and under UK tax legislation, tax relief
States (such as Post NL or Deutsche Post) and is itself
is only available for pension contributions where and
active on markets outside the United Kingdom through
when those pension contributions are paid. As such,
its express parcel subsidiary GLS. Therefore, the measures
RMG has not claimed tax relief for any liabilities
in question are liable to distort competition and affect
reflected in its accounts to date. Following the transfer
trade between Member States.
of those liabilities to the new scheme, RMG will no
longer be responsible for funding the RMPP and
therefore will not claim any tax relief. As RMG will
not be able to claim tax relief in respect of the related
pension obligations which are currently reflected in its
5.1.4. Conclusion as regards the existence of aid
accounts, equally, it would not expect to suffer tax on
the reversal of the accounts provisioning. Therefore, the
(153) In light of the above, the Commission concludes that
Commission finds that the tax treatment of the pension
both the pension relief as well as the debt reduction
relief does not involve a selective advantage for RMG and
measures in the restructuring plan constitute State aid
does therefore not constitute State aid.
within the meaning of Article 107(1) of the Treaty.
( 28 ) Case-342/96, Spain v Commission (Fogasa) [1999] ECR I-2459,
par.31–34; Case-256/97, Déménagements-Manutention Transport
(DMT), [1999] ECR I-3913, par.24; Case T-152/99, Hijos de
Andres de Molina SA (HAMSA) v Commission [2002] ECR
(150) As regards the assessment whether the debt reduction
II-3049, par.166.
measures provide a selective advantage, the Commission
( 29 ) Case T-214/95, Het Vlaamse Gewest v Commission [1998] ECR
assesses this type of measures under the private creditor
II-717.

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5.2. Compatibility of the aid
to the beginning of market opening and which can no
longer be honoured under the same conditions in a
(154) As the derogations provided for in Article 107(2) of the
competitive market environment because the historic
Treaty and Article 107(3)(a)(b) of the Treaty do clearly
operator is no longer able to pass on the corresponding
not apply, the Commission will assess to which extent
costs to consumers.
the pension relief and the debt reduction measure can be
found compatible with the internal market under
Article 107(3)(c) of the Treaty.
(160) The Commission has recognised in its decision-making
practice that the gradual transition from a situation of
(155) The United Kingdom has not invoked Article 106(2) of
largely restricted competition to one of genuine
the Treaty as such as justification for the compatibility of
competition at Union level must take place under
the aid granted to RMG.
acceptable economic conditions ( 32 ). Therefore, it has
accepted in a number of decisions that Member States
grant State aid to relief the historic operator of a part of
its ‘legacy’ pension liabilities ( 33 ).
5.2.1. Compatibility of the pension relief as compensation for
legacy pension costs under Article 107(3)(c) of the
Treaty
(156) The Commission will assess whether the pension relief
(161) In its Decision regarding the State aid granted to EDF ( 34 ),
can be declared compatible pursuant to Article 107(3)(c)
the Commission declared compatible with the common
of the Treaty, which provides that aid to facilitate the
market State aid that relieved EDF of specific pension
development of certain economic activities or of certain
liabilities which exceeded those resulting from the
economic areas may be declared compatible with the
general retirement arrangements and which had been
internal market where such aid does not adversely
defined during the monopoly period. The Commission
affect trading conditions to an extent contrary to the
stated that these liabilities were not dissimilar in nature
common interest.
to that of stranded costs in the electricity sector ( 35 ) and
that aid to compensate excessive pension costs would
therefore be treated in the same way as compensation
for stranded costs. Therefore, the Commission declared
that the same approach would be applied in the analyses
(157) According to the case-law, the Commission may declare
State aid compatible with the internal market if the aid
of similar cases in the future.
contributes to the attainment of an objective of common
interest ( 30 ), is necessary for the attainment of that objec
tive ( 31 ), and does not adversely affect trading conditions
to an extent contrary to the common interest (propor
(162) In its Decision of 10 October 2007 on the State aid
tionality).
granted to La Poste ( 36 ), the Commission declared
compatible with the common market State aid that
relieved La Poste of specific pension liabilities which
exceeded those resulting from the ordinary pension
(158) Postal services contribute to social, economic and terri
arrangements and which had been defined during the
torial cohesion in the Union. The gradual opening of
monopoly period. These liabilities arose from, first, the
postal services to competition, which started at Union
higher pension contributions payable in respect of
level in 1998, has brought about increased quality,
employees with civil servant status and, secondly, the
greater efficiency and better responsiveness to users.
requirement to ensure the equilibrium of its retirement
Market opening has allowed the establishment of an
scheme for these employees.
internal market for postal services. It therefore
contributes to the objective of the establishment of the
( 32 ) See Commission Communication relating to the methodology for
internal market set out in Article 3(3) of the Treaty on
analysing State aid linked to stranded costs, Commission letter SG
European Union.
(2001) D/290869 of 6.8.2001.
( 33 ) Decision 2005/145/EC on the State aid granted by France to EDF
and the electricity and gas industries (see footnote 13); Decision
2008/204/EC on the State aid implemented by France in
connection with the reform of the arrangements for financing the
(159) However, during the process of liberalisation, the former
retirement pensions of civil servants working for La Poste (see
incumbent may suffer from a competitive disadvantage
footnote 12); Commission Decision 2009/945/EC concerning the
because he is burdened with ‘legacy costs’, that is to say
reform of the method by which the RATP pension scheme is
costs which come from commitments entered into prior
financed (State aid C 42/07 (ex N 428/06)) which France is
planning to implement in respect of RATP; Commission Decision
of 20 December 2011 in case C 25/2008 concerning the Réforme
( 30 ) Case T-162/06, Kronoply v Commission [2009] ECR II-1, especially
du mode de financement des retraites des fonctionnaires de l’Etat
paragraphs 65, 66, 74 and 75.
rattachés à France Télécom, not yet published.
( 31 ) Case T-187/99, Agrana Zucker und Strke v Commission [2001] ECR
( 34 ) See footnote 13.
II-1587, paragraph 74; Case T-126/99, Graphischer Maschinenbau v
( 35 ) See also Commission Communication relating to the methodology
Commission [2002] ECR II-2427, paragraphs 41 to 43; Case
for analysing State aid linked to stranded costs, adopted by the
C-390/06, Nuova Agricast [2008] ECR I-2577, paragraphs 68
Commission on 26 July 2001.
and 69.
( 36 ) See footnote 12.

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(163) The Commission noted that the measures were limited to
beneficiaries in equivalent positions because their pension
what was strictly necessary to establish a level playing
arrangements differed very significantly from the
field for social security contributions and ultimately
competitors’ pension arrangements.
would therefore favour the development of competition
and further liberalisation of the postal sector. It further
noted, by way of drawing a parallel with the EDF
decision, that La Poste no longer recruited civil servants
(168) Second of all, as with the previous cases, the Commission
and that the future pensions payments of La Poste placed
considers that in the absence of any State intervention to
it in a comparable situation vis-à-vis its competitors as
relieve RMG of at least part of the pension liabilities,
regards social security contributions.
RMG would not be able to compete on its merits with
its competitors. After all, leaving RMG with the pension
deficit would lead to its bankruptcy. As mentioned in
recital 29, RMG has shown at the end of the
2010/2011 financial year negative operating assets on
(164) In its Decision of 25 January 2012 concerning subsidies
for the financing of the civil servants’ pension costs at
its balance sheet. Even after a successful implementation
Deutsche Post (
of the restructuring plan RMG would remain with net

37 ), the Commission verified, in line with
its La Poste Decision, whether the social security
liabilities of at least GBP 2 000 million without a relief of
contributions borne by Deutsche Post were equivalent
the pension deficit.
to those of private competitors. The Commission found
that, in addition to pension subsidies, Deutsche Post has
also benefitted from dedicated stamp price increases to
finance the civil servants’ pension costs. Taking account
(169) However, there are some factors which distinguish the
of this extra relief, Deutsche Post had effectively borne
previous cases from this case.
significantly lower social contributions than private
competitors in certain market segments. Accordingly
the Commission declared the pension subsidies as
partly incompatible with the internal market and
(170) In the first place, the UK pension arrangements differ
ordered Germany to recover the incompatible share of
significantly from those in other Member States. Most
the pension subsidies.
occupational pension schemes are ‘contracted out’ of
the State pension arrangements known as the State
Earnings Related Pension Scheme. Most large employers
run their own pension schemes. Under UK pension law,
those schemes must provide a pension entitlement which
(165) In its Decision on the same day in BPost ( 38 ), the
meets certain standards, and employers have certain
Commission found the State aid granted to BPost for
obligations to ensure that schemes are adequately
the relief of civil servants’ pension liabilities as
funded. Under current accounting standards (IAS),
compatible with the internal market under
employers must record deficits on such pension
Article 107(3)(c) of the Treaty since it only relieved
schemes on their balance sheets.
BPost of legacy pension costs without placing the
company in a more favourable position than its
competitors as regards the social security contributions.
The Commission verified that the social security
contributions borne by Belgian Post were equivalent to
(171) In this respect, the RMPP is in principle similar to
those of private competitors.
pension funds of private competitors. The only difference
between RMG and competitors lies in the fact that the
level of pension liabilities — and thus the deficit of the
RMPP — has arisen from terms and conditions which
were agreed during the monopoly period and in line with
(166) There are certain parallels between the case on RMG and
the status of civil servants.
previous case-law.
(172) Furthermore, the terms and levels of other social costs
(for example contributions to the State pension
(167) First of all, all cases involve material economic risk and
arrangement, contributions to health and unemployment
involve uncapped liabilities: RMG bears the economic
insurances) do not differ between RMG’s employees and
risk of a pension scheme which stems from RMG’s
private competitors’ employees.
public monopoly legacy. The other postal incumbents
bore a similar economic risk prior to being relieved of
their liabilities, and were similarly disadvantaged when
compared to their competitors. All cases concern aid
(173) Finally, RMG will remain liable for all newly accrued
liabilities in the future as well as for new liabilities
( 37 ) N.y.p., see Press release IP/12/45 and MEMO/12/37 of 25 January
from an increase in the previously-accrued benefits of
2012.
( 38 ) N.y.p., see Press release IP/12/45 and MEMO/12/38 of 25 January
current employees as a result of future above-inflation
2012.
wage increases. This means that RMG will continue to

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bear the same level of pension costs for newly accrued
(179) With regard to Deutsche Post’s comment that the
pension rights. The notified pension relief will therefore
assessment should take into account the extent to
only reduce historic pension liabilities up to the date of
which pension costs were passed on through increased
the pension relief on 1 April 2012, while RMG remains
regulated stamp prices, the Commission has reviewed the
fully responsible for any deficit that may arise from
UK postal regulator’s pricing decisions. The Commission
newly accrued pension rights after the pension relief on
finds that in the RMG case pension costs were evenly
1 April 2012.
apportioned between the different business segments of
RMG according to generally accepted cost allocation
principles. This means that both the price-regulated as
well as the other services in competition have carried
an appropriate share of the pension deficit. It is
(174) These differences justify an adjustment of the approach
therefore not true that in the RMG case the regulated
followed in previous cases to assess the compatibility of
prices financed a disproportionate share of pension
the measure at issue and to account for the specificities
costs for the benefit of the non-price regulated business
of the UK pension arrangements. In the previous cases,
segments. The UK postal regulator has ensured that all of
the compulsory social security contributions (for example
RMG’s business segments have equally and propor
the contribution to the social insurances for pension,
tionally contributed to the financing of the RMPP’s
health, and unemployment) were used as a benchmark
deficit and have not been placed in a better position
but this is not appropriate in the current case.
than competitors.
(175) First, as RMG bears — apart from the pension costs —
(180) The Commission will first assess the United Kingdom’s
the same level of costs as competitors for the other social
contention that the current deficit of the RMPP can be
insurances (for example the financing terms for health
fully relieved because the amount of liabilities which are
and unemployment insurances do not differ from those
due to more generous entitlements that the RMPP offered
of competitors), the benchmarking has to be carried out
to its members exceeds the current deficit.
with regard to the funding of pension’s liabilities. It has
to be ensured that RMG is placed in the same position as
competitors in respect of their obligations as regards the
financing of pension funds.
(181) The United Kingdom has submitted a study to support
its assertion that the pension deficit has been caused by
abnormally high pension liabilities. This study estimates
(176) Second, in the previous cases, the Commission approved
that the level of abnormal liabilities of the Royal Mail
a level of aid such that the postal incumbent’s future
scheme is GBP 12,7 billion when compared to the
social costs were capped at the competitors’ social
liabilities that would result from a pension fund that
contribution rates. The United Kingdom reform does
offers pension benefits in line with the statutory
not go that far but leaves RMG the full financial respon
minimum. An amount of GBP 6,9 billion of abnormal
sibility for any deficit that results from the newly accrued
liabilities results when compared to the UK average
pension rights. Therefore, the comparison has to be done
pension fund’s liabilities. As, in both cases, those
on the basis of RMG’s accrued pension liabilities at the
liabilities would be higher than the current deficit of
date of the pension relief on 1 April 2012.
GBP 4,5 billion, the United Kingdom claims that a total
relief of the pension deficit is justified.
(177) Third, it is not straightforward to find a single
benchmark for the level of competitors’ pension costs
(182) First, the Commission refutes the comparison to the
because the pension benefits offered by the pension
statutory minimum because the submitted data on the
funds differ from one company to another. Each
average UK pension schemes clearly shows that the
pension fund has individual arrangements with the spon
majority of UK pension schemes offer benefits that go
soring companies. At most, the comparison can be done
significantly beyond the statutory minimum.
based on an average of comparable pension funds.
(178) Therefore, the Commission will assess whether RMG will,
(183) Second, the Commission considers that the provided
as a result of the pension relief, be placed in a
comparison to the average pension schemes must be
comparable situation vis-à-vis its competitors and other
critically reviewed because the different elements of the
UK companies as regards the liability for accrued pension
comparison show different degrees of quality and relia
deficits.
bility.

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EN
12.10.2012 Official
Journal
of
the
European
Union L
279/59
(billion GBP)
of GBP 1,9 billion depend sensitively on the assumptions
Costs relative
about the future behaviour of the private sector schemes
to average
and are therefore the least robust estimate out of the four
pension
items of legacy costs.
scheme
1 RMPP’s
retirement
age
of
60
compared
to
3,5
average retirement age of 63,5
(188) As the United Kingdom itself admits, an analysis of
2 Redundancy
benefits 0,5
legacy cost compared to an average benchmark is
necessarily characterised by a certain margin of approxi
3 Deferred
pension
revaluation
for
employees
1,1
mation given the diversity of UK pension schemes and
who left service before 1991
the lack of detailed benchmarking data stretching back
20-30 years. While the United Kingdom considers that
4 Increases
to
paid-out
pensions
relating
to
1,9
the estimates of the four items are considered reasonable
pre-1997 service
based on their expert’s experience, the United Kingdom
notes nevertheless that the degree of confidence and level
TOTAL 6,9
of external supporting data does vary by item.
(184) Compared to RMPP’s retirement age of 60, the average
retirement age was 63,5 across United Kingdom private
(189) The Commission considers that the estimates of legacy
sector schemes over the period 1990 to 2010. The
costs concerning the retirement age and the redundancy
difference in pension costs of GBP 3,5
billion is
benefits are reliable because they are calculated based on
calculated based on reliable data.
objective data. Consequently, the Commission notes as
an intermediate result of its assessment that the provided
data by the United Kingdom on the abnormality of the
pension liabilities would provide sufficient evidence to
(185) The redundancy benefits of GBP 0,5 billion under the
justify a (partial) relief from the pension deficit in so
RMPP are an unusual feature for private sector schemes
far as the aid was limited to the legacy costs stemming
and are identified as pension costs that go beyond those
from these two items.
of general pension arrangements.
(190) However, concerning the other items, the magnitude of
abnormality depends sensitively on the assumptions
(186) For members of UK pension schemes who left active
made by the expert. Although the Commission
service prior to 1991, pension schemes are not
recognises that the RMPP offered more generous
required to provide inflationary increases on all their
benefits than average private sector schemes, it is
benefits in the period between leaving employment and
difficult to exactly quantify them.
retiring. However, the RMPP does provide inflationary
increases on all benefits for such members. The United
Kingdom was not able to provide exact numbers of
private sector schemes that also offer deferred pension
(191) The Commission therefore concludes that although the
revaluation for pre-1991 leavers but assures the
submitted expert study is based on reasonable
Commission that a clear majority of schemes do not
assumptions as regards abnormality resulting from early
provide such revaluation. In the calculation of the
retirement age and redundancy benefits, it suffers from a
abnormal liabilities of GBP 1,1 billion, it is assumed
lack of (historical) data on the other sources of abnor
without sufficient justification that 75 % of all private
mality and can therefore not be considered reliable
sector schemes would not offer such additional benefits.
enough to justify a complete relief of RMPP’s pension
deficit.
(187) Contrary to the RMPP, pensions accrued prior to 1997
are generally not required to increase once retirement
(192) Moreover, the Commission is of the opinion that a total
benefits have started to be paid to the respective
relief of the pension deficit would place RMG in a better
member of the scheme. However, 36 % of private
position vis-à-vis its competitors and other UK
sector schemes guarantee increases in line with
companies as regards its pension liabilities. Indeed,
inflation as does the RMPP. The other private sector
when looking at the pension deficits that the FTSE 100
schemes do not offer guaranteed increases in the same
companies ( 39 ) show on their balance sheets, the vast
magnitude but it was common practice in the past that a
majority of those companies with a comparable profile
majority of those schemes decided at their own
to RMG, currently do carry pension deficits due to the
discretion increases that came close to the guaranteed
rising life expectancy of the pension schemes’ members
increases. The United Kingdom’s expert doubts that this
and the adverse conditions on the stock markets.
practice will continue in the future because also private
schemes are now in deficit and may decide to cut back
( 39 ) The FTSE 100 Index is a share index of the 100 most highly
on the discretionary increases. The calculated legacy costs
capitalised UK companies listed on the London Stock Exchange.

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L 279/60
EN
Official Journal of the European Union
12.10.2012
(193) In order to overcome these difficulties in assessing the
(198) To benchmark the pension deficit, the Commission finds
compatibility of the aid at issue, the Commission has
it therefore appropriate to use the projected average
looked at the average pension deficits of companies
EBITDA over the period from 2010 to 2015 to take
with a profile similar to that of RMG.
account of the fact that RMG’s profits are expected to
increase in the coming years. As the average EBITDA is
estimated to amount to GBP […] million, the pension
deficit that RMG should keep on its balance sheet after
the pension relief amounts to GBP 150 million.
(194) The United Kingdom puts forward that the ratio of
pension deficit to EBITDA (= Earnings before Interest,
Tax, Depreciation, and Amortisation) provides a
measure of the relative burden of the pension liabilities
(199) To correctly value the impact on RMG’s balance sheet,
and a company’s ability to fund such liabilities. The
further clarifications are necessary:
United Kingdom submitted the latest available accounting
data from 2011 on the pension deficits and EBITDAs of
the FTSE 100 companies. The Commission considers that
on average, the FTSE 100 companies show a pension
deficit that amounts to [16 to 23 %] of the EBITDA.
(i) as the benchmarking is done on the level of the total
exposure of a company to its pension deficit, the
benchmarked deficit of GBP 150 million should be
understood to include the deficits of all pension
schemes that RMG currently sponsors;
(195) In contrast, RMG’s pension deficit is significantly higher
than its EBITDA — for example measured in relation to
its 2011 EBITDA — RMG’s pension deficit amounts to
more than 12 times its EBITDA. As the letter business is
(ii) the benchmark value of GBP 150 million represents
highly labour intensive, RMG is particularly exposed to
RMG’s total liability for historic pension deficits
the increased pension deficits from the defined-benefit
accrued at the date of the pension relief on 1 April
schemes that RMG entered into in the pre-liberalisation
2012 in line with the generally accepted IAS rules.
period. Compared to other companies of a similar
profile, RMG is therefore in a worse financial situation
in respect of its ability to cover the pension deficits from
on-going revenues.
C o n c l u s i o n s
(200) The Commission considers that in order to be considered
as compatible with the internal market under
Article 107(3)(c) of the Treaty, the pension relief must
(196) The Commission considers that the ratio of pension
be limited such that RMG remains liable for a pension
deficit to EBITDA provides a reasonable benchmark for
deficit that is in line with the average pension deficit that
the pension deficit that is generally assumed by UK
UK companies with a comparable profile assume on their
companies with a comparable profile to RMG. Aid
balance sheets. Therefore, taking the average pension
granted to relieve RMG of abnormal pension liabilities
deficit of FTSE 100 companies as a benchmark, the
can therefore be considered as compatible insofar as
pension relief under Article 107(3)(c) as compensation
RMG carries after the grant of the aid a liability on its
for legacy pension costs must be limited such that
balance sheet that is comparable to the pension deficit
RMG will retain at the date of the pension relief on
that a UK company of a similar size generally assumes
1 April 2012 a liability of GBP 150 million on its
on its balance sheet. Using as benchmark group the FTSE
balance sheet for the accrued deficits of the pension
100 companies, which show an average liability for
schemes that RMG sponsors.
pension deficits of [16 to 23 %] of their EBITDA, RMG
should also retain a liability for a pension deficit that
equals [16 to 23 %] of its EBITDA. This way, the
pension relief will be limited to those pension costs
that comparable private sector companies have
(201) Furthermore, the Commission notes that, contrary to
generally not assumed.
previous cases, the pension relief will not affect RMG’s
on-going pension costs since the pension relief is
restricted to the historic pension deficit accrued up to
the date of the pension relief on 1 April 2012. As the
RMPP was closed for new members on 31 March 2008
and currently active member of the RMPP agreed to a
(197) The United Kingdom has calculated RMG’s ratio of
reduction in their pension benefits, RMG’s defined-benefit
pension deficit to EBITDA based on RMG’s realised
exposure will decrease over time. The Commission
EBITDA in 2011. However, the Commission considers
considers therefore that RMG should not receive any
that it is erroneous to use the 2011 EBITDA because
aid in the future as compensation for legacy costs in
the 2011 EBITDA is particularly low because of RMG’s
respect of pension liabilities accruing after 31 March
financial and operational difficulties.
2012 for RMPP members.

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EN
12.10.2012 Official
Journal
of
the
European
Union L
279/61
(202) The Commission considers that the implementation of
the R&R Guidelines and is consequently eligible for
these conditions will ensure that the pension relief will
restructuring aid.
not place RMG in a better position than competitors
concerning the liability for the accrued pension deficits
as well as payment of on-going pension costs.
R e s t r u c t u r i n g p l a n a n d r e s t o r a t i o n o f
v i a b i l i t y
5.2.2. Compatibility of the debt reduction measures under the
(208) According to points 34-37 of the R&R Guidelines, the
R&R Guidelines
grant of aid must be conditional to the implementation
of a restructuring plan endorsed by the Commission and
(203) In line with the R&R Guidelines, in order for an aid to be
to which the Member State has committed itself. The
compatible under Article 107(3)(c) of the Treaty it must
restructuring plan has to analyse in detail the problems
comply with criteria for compatibility listed in section
which have led to the difficulties and to set out the
3.2.2 of those Guidelines:
means by which to restore the long-term viability and
health of the firm within a reasonable timescale. It has to
be ensured that the restructuring measures are appro
priate to address the company’s problems and enable
E l i g i b i l i t y
the company to progress towards a new structure that

allows it to stand on its own merits. The improvements
(204) The R&R Guidelines consider a firm to be in difficulties
in viability must derive mainly from internal measures.
where it is unable, whether through its own resources or
with the funds it is able to obtain from its owner/share
holders or creditors, to stem losses which, without
outside intervention by the public authorities, will
(209) The restructuring plan must also be as short as possible
almost certainly condemn it to going out of business.
and be based on the basis of realistic assumptions as to
The R&R Guidelines also list some usual signs of such
future operating conditions. The expected return on
companies, such as mounting debt or falling or nil net
capital must be enough to enable the restructured firm
asset value.
to compete in the marketplace on its own merits.
(205) As already set out in section 3.4 of the opening decision,
(210) The updated restructuring plan submitted to the
RMG is a company in difficulty as defined in section 2.1
Commission by the United Kingdom covers the period
of the R&R Guidelines because RMG shows the usual
2010/2015.
signs of a such company: e.g. negative net worth of
approximately GBP 3 000 million on its balance sheet
at March 2011, declining revenues by 3 % from 2008
to 2011, and a negative cash-flow before interest of
(211) Indeed, RMG started in the financial year 2010/2011 to
approximately GBP […] million in the financial year
take significant measures to address its inefficiency
2011/2012.
problems in the letter business. In 2010 that RMG
started to close loss-making mail centres to a larger
extent, to deploy new machines for the automation of
its sorting activities and to re-organise delivery offices
(206) Although the pension relief, which the Commission
according to the ‘World Class Mail’ efficiency
considers to be a compatible aid for the compensation
programme.
of pension legacy costs pursuant to Article 107(3)(c) of
the Treaty in so far as it is limited such that RMG will
retain GBP 150 million on its balance sheet, will reduce
RMG’s liabilities and improve its cash-flow, RMG’s
(212) Furthermore, in 2010 the United Kingdom engaged in
financial difficulties will not be resolved. Even after the
pre-notification contacts with the Commission to provide
pension relief, RMG’s expected cash-flows before interest
information about the envisaged restructuring measures
remain negative or only slightly positive. In any case,
and the need for restructuring aid.
RMG would not be able to afford to repay its debt
facilities of GBP […] million when they fall due for
repayment in […]. In the same vein, even though the
balance sheet is expected to show net assets of GBP […]
(213) Starting from 2010 onwards, RMG has undertaken
million after the pension relief, RMG will not reach a
significant restructuring measures — as described in the
sufficiently high credit rating to be able to raise funds
restructuring plan — that have introduced a step-change
from the financial markets.
in RMG’s letter business. Those measures address the
inefficiencies of the letter operations (overstaffing,
lacking automation, too high number of mail sorting
centres) compared to other European postal incumbent
(207) In view of the above, the Commission considers that
who have already undertaken those modernisation efforts
RMG qualifies as a ‘firm in difficulty’ in the meaning of
and have achieved a financially sound standing.

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L 279/62
EN
Official Journal of the European Union
12.10.2012
(214) RMG’s proposed operational modernisation covers
The expected demand would therefore decrease […]
changes in all areas and results in significant cost
faster in the pessimistic scenario and […] slower in the
savings for the business. The modernisation will deliver
optimistic scenario than in the base case. The
savings via the introduction of new technology and more
Commission considers that those projections provide a
effective working practices as RMG rolls out ‘World Class
realistic picture with a sufficiently broad range of
Mail’ operations throughout the letters network, which
outcomes (for example the expected letter volumes
aims to raise productivity through the deployment of
would after 10 years fall in a range of […]of RMG’s
best practices. The operational modernisation is
current volume).
projected to result in annual cost savings of GBP […]
million (net of pay increases) by 2014/2015, driven by a
headcount reduction of […].
(219) The base-case business plan shows that RMG expects to
break even in […] and achieve a return of […] % on
invested capital after March 2015. Compared to postal
incumbents in other Member States and private UK oper
(215) The Commission concludes therefore that the updated
ators ( 41 ), RMG’s expected return is within the range of
restructuring plan address appropriately the weaknesses
returns that those companies currently achieve. As the
of RMG’s letter business and allows RMG to progress
restructuring measures will bring RMG to a level of oper
towards a new and sustainable structure. The
ational efficiency comparable to that of other postal
improvement in RMG’s profitability comes from the
operators, it is reasonable to expect that RMG will, in
internal measures (for example closure of mail sorting
the long-term, generate profits in the same range as its
centres, streamlining of internal processes and significant
peers.
reduction of workforce) that increase RMG’s productivity
in a declining letter market.
(220) With regard to the pessimistic scenario, RMG is expected
to break even during financial year […] and reach
onwards a level of profitability to finance its operations
(216) The Commission further notes that according to the R&R
Guidelines, the restructuring plan must ensure that the
and provide a return of […] on invested capital from
company returns to long-term viability. Since the restruc
2015. RMG will therefore also achieve long-term
turing plan shows that RMG will already reach profit
viability under less favourable market conditions.
ability to sustain its operations by the end of the
2014/2015 financial year in March 2015 reach, it is
therefore not necessary to provide any further aid after
(221) In light of the above, the Commission is of the opinion
March 2015.
that the restructuring plan is based on realistic predic

tions. The assumptions submitted with regard to the
development of the market are plausible, and the
forecasts made in the restructuring plan with regard to
(217) Viability will therefore be re-established in a restructuring
progress in terms of RMG’ overall result therefore appear
period of five years, which the Commission considers to
credible.
be a reasonable length of time ( 40 ). In the present case it
does not appear possible to restore the long term
viability of RMG within a shorter time period because
(222) Having analysed and verified the updated restructuring
of the extent of the restructuring — including a large
plan, the Commission considers that that the plan
change in RMG’s business operations, staff reduction and
complies with the requirements of points 34-37 of the
closure of a huge number of mail centres — combined
R&R Guidelines and in particular it will restore the
with the necessity to ensure the uninterrupted provision
viability of RMG in line with the R&R Guidelines.
of the USO.
O w n
c o n t r i b u t i o n
a n d
m i n i m u m
n e c e s s a r y
(218) As regards the assumptions on the future supply and
demand on the relevant markets, the Commission
(223) Pursuant to points 43-45 of the R&R Guidelines, the aid
notes that the restructuring plan already assumes in the
must be limited to the minimum necessary and the bene
base-case scenario (see recital 76) an annual decline in
ficiary is expected to make a significant contribution to
letter demand by […]. In view of the substitution of
the restructuring from its own resources or from external
traditional letters by e-mail, the Commission agrees to
commercial financing. The R&R Guidelines clearly
base the projections on a substantial reduction of letter
indicate that a significant part of the financing of the
volumes. The United Kingdom has also provided
restructuring must come from own resources, including
financial projections of RMG under more pessimistic
the sale of assets not essential to the firm’s survival and
and optimistic scenarios: With the pessimistic scenario,
from external financing at market terms. Such
the annual decline in the letter business would be […]
contribution must be real and must be as high as
instead of […] per year, while with the optimistic
possible, at least 50 %